Q3 2020 Tronox Holdings PLC Earnings Call
[music].
Good day and welcome to the Tronics Holdings Q3 concurrent earnings call.
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After todays presentation can be an opportunity to ask questions.
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I would now like to turn the conference over to gently downturn Vice President I mean, the nation. Please go ahead.
Thank you and welcome to our third quarter 2020 conference call and webcast on our call today are Jeff Quinn, Chairman and Chief Executive Officer, John Friends Watchers, Young Chief operating Officer, John Romano, Chief commercial and strategy Officer.
Tim Carlson, Chief Financial Officer, and John Third adult Senior Vice President business development and finance.
We will be using slides as we move through today's call. It will be listening by Internet broadcast through our website should already have them for those listening by telephone if you haven't already done. So you can access them on our website at Investor got turn on Dot com.
Moving to slide two era.
A reminder, that comments made on this call and the information provided in our presentation and on our website include certain statements that are forward looking and subject to various risks and uncertainties, including but not limited to the specific factors summarized in our SEC filings.
Information represents our best judgment based on today's information. However, actual results may vary based on these risks and uncertainties.
The company undertakes no obligation to update or revise any forward looking statements.
During the conference call, we will refer to certain non us GAAP financial terms that we use in the management of our business and believe are useful to investors in evaluating the company's performance.
Reconciliations to their nearest U.S. GAAP churn are provided in our earnings release and in the appendix of the accompanying presentation moving to slide Green. It's now my pleasure to turn the call over to Jeff Quinn Jeff.
Thanks, Jennifer good morning, everyone and thank you for joining us today.
I will first review the highlights of the quarter before turning it over to other members of my team for a deeper dive into the results for the quarter I will then share an update on several of our ongoing strategic projects and our outlook for the full year.
We were very pleased with our third quarter results, which continue to reflect the strength of our vertically integrated business and our ability to optimize our operations and deliver strong financial results across a variety of business conditions.
Revenue in the third quarter increased 17% sequentially, driven largely by improved T. Ao two sales volumes and recovery in feedstock and other revenues.
The improved keogh to market demand, we began to see in July continued through the remainder of the quarter, resulting in a sequential volume growth in all geographic regions.
As we were discussing that trend also gave us momentum as we entered the fourth quarter and we have seen that materialized in our October order book.
Two sales volumes recovered strongly in the quarter, increasing 16% sequentially outpacing our previous expectations.
Pricing remains stable.
Adjusted EBITDA for the quarter was 148 million with an adjusted EBITDA margin of 22%.
Utilizing our proprietary enterprise optimization model, we adjusted our operations in the quarter to accommodate the effect of the pandemic, which resulted in temporary higher production cost slide.
Slight negative impact to margins as we had foreshadowed on our second quarter earnings call.
These temporary impacts were minimized through continued cost reduction as well as increased acquisition synergies.
The amount.
Given our synergy trajectory, we will significantly see the increase longer term synergy targets laid out at the beginning of this year for future years.
After we complete our budget process for the year at the year end Kong February we will lay out new synergy new significantly increase synergy targets for future years.
<unk> will provide more details on the breakdown of the synergies achieve year to date in 2022 help demonstrate the areas of value creation that continue to grow.
Our third quarter net income of $902 million included a non-cash deferred tax benefit of $895 million due to the reversal of a portion of our U S valuation allowance were late into net operating loss carryforwards.
This reversal of a portion of our U S valuation allowance is based upon an analysis of our improve profitability as well as our expectations for continued profitability in the U S. Increasing the likelihood that R. U S subsidiaries will be able to utilize the substantial deferred tax asset on a balance sheet.
This is yet again further evidence the strength of our business model and how tronox will deliver a value to our shareholders in the future.
It just it EPS for the quarter was five cents.
From a liquidity and capital resource perspective, we are pleased with how well our business disposition. Despite the pandemic.
We have $1.1 billion in cash in available liquidity more than sufficient to sustain our business.
As we move closer to the end of the year, we are evaluating incremental debt pay down options you utilizing excess liquidity on the balance sheet too cheap to advanced falter towards our gross debt target of $2.5 billion.
I will now turn the call over to John Romano are cheap commercial and strategy officer, who will comment on our commercial performance and the trends we're seeing in the global marketplace John.
Thanks, Jeff now moving to slide four first of all take you through the year on year comparisons.
Revenue of $675 million was 12% lower than $768 million for the year ago quarter, primarily due to the impacts from the COVID-19 pandemic.
Ti attitude pigment sales of $543 million were 10% lower driven primarily by a sales volume decline of 9%, reflecting weaker demand in Asia Pacific led by India due to the impacts of COVID-19 Ah.
Ah slight lagging Europe, while volumes in Latin America exceeded and in North America were level with Q3 $2019.
The year over year volume Klein decline of 9% for Q3 is a significant improvement from the previous quarter, where volumes or 27% lower year on year.
As Jeff will share with you in a few minutes when he provides our outlook. We expect this year over year negative variance to be eliminated in the fourth quarter.
Ti to selling prices were 3% local lower on a local currency basis year over year or 1% lower when adjusted for currency. This.
This represents very little pricing movement from this point last year. Despite the challenge macroeconomic backdrop, largely attributable to our margins stability initiatives now.
Now moving to zircon sales are $56 million or 18% lower than a year ago.
<unk> sales volumes were 7% lower when compared to Q3 of 2019, driven by software market conditions and the timing it shouldn't.
Selling prices were 11% lower than a year ago quarter.
As we've mentioned before zirconium pricing decline late in the fourth quarter and early in the first quarter. So this comparison demonstrates the law forward that trend on a year over year comparison.
And feedstock another product sales of $76 million declined 22% largely due to lower mandated cp's flag sales associated with the remedy for the Crystal transaction and lower pig iron sales volumes do the COVID-19.
Now moving to the sequential comparison versus the second quarter of 2020.
Revenue of 6600 $75 million increased 17% from the prior quarter unimproved tio too and feedstock another product sales due to increased market demand.
Ti to pigment sales of $543 million or 17% higher compared to $466 million.
Sales volumes or 16% higher as we saw sequential volume growth in all regions led by strong volumes in North America, and a significant recovery in Latin America.
Selling prices were level on the U S dollar basis or down 1% or currency basis.
Two pricing in 2020 has been relatively stable despite the challenging macroeconomic environment, we have been operating in.
Moving to zircon sales are $56 million decreased by 18% from the previous quarter sale.
Sales volume declined 15% as a result of shipment timing on some volume that shifted from Q3 into Q2 as we communicated in our second quarter earnings call as well as volume that have shifted into what will now be a very strong fourthquarter.
<unk> selling prices declined by 2% largely driven by product mix.
And finally feedstock another product sales of $776 million increased 72% due to improved pig iron volumes and the resumption of mandated CD flag sales as per the FTC concert order.
Looking back of the quarter September was our strongest tio two volume on that.
The trajectory moving out of the third quarter as encouraging as we see this strength continuing into October indicative of it improving market condition, which we expect to see through the end of the year and into 2021.
Jeff will speak to our fourth quarter volume outlook later in the call.
And finally, we're expecting TRT pricing in queue for to remain in line with the third quarter.
As we discussed our last earnings call.
Following the precipitous drop off in the second quarter Chinese sulfite sulfate pricing began to increase in July and has continued to increase into the fourth quarter supported by improving demand and an increase in Chinese and imported ilmenite pricing.
I will now turn the call over to J F for revenue of our operating performance and profitability in the quarter J F.
Q John.
Moving to slide five let me first review the year over year comparison.
Just the EBITDA of $148 million was 20% lower than a year ago water.
We've been in this quarter versus the year ago quarter from $34 million in synergy and favorable foreign exchange rate, primarily the South Africa Latin zero.
And Brazilian Liao.
This was upset by lower sales volume and pricing.
Increase production cost driven by the adjustment of our operation to accommodate the effect of the pandemic.
Idaho facility and LTM charge NDS sense of the deferred margin benefit from Q3 2019.
Sequentially adjusted EBITDA of $148 million increase 4% from the $142 million.
The reason primarily by the <unk> volume John discussed earlier, the favourable comparison of production cost in South Africa due to COVID-19 related slowdown on our operation in the second quarter.
And an incremental 4 million dollar of synergy achieved in Q3 versus cute too.
This improvement was achieved despite increased statement production costs in the quarter due to the adjustments before operation to accommodate the effect of the Pennsylvania.
And then for them.
Vertical foreign exchange rate, primarily to South Africa ran and the Australian dollar.
Overall operation continued to remain stable.
And achievement I'm proud us considering the challenge presented by COVID-19.
Using our operational excellence program and are integrated business planning to we have reduced our anticipated bank app fixed costs.
Approximately $50 million to offset the impact of the COVID-19.
Combined with the strength of our synergy capture we have minimized the impact on our margin profile.
Why am many of this cost reductions words federal that will be insured honestly return to normal operation and the first F of 2021.
From the synergy will carry forward.
I would now like to turn the call over to John service hole to discuss the synergy in further detail John. Thank you J F. Turning to five six is jas mentioned on the previous slide in Q3, we achieved $34 million of incremental synergies year over year reflected in EBITDA.
This amounts of the year to date synergies of 134 million reflected in EBITDA for 183 million achieved in total synergies the balance being tax and other synergies.
As Jeff mentioned earlier in the call given our continued demonstration of the benefits of our vertically integrated business model. We have raised our full year 2020 synergy targets to $235 million from the 190 million target said earlier this year.
The $185 million of this amount is expected to be reflected in EBITDA, which is also increase from the 140 million target from earlier this year.
As we have mentioned on previous earnings cause the majority of the targeted synergies are coming from true cost savings and not typed volumes.
We continue to realize more synergies faster despite the macro backdrop with a slight shift in allocation across the anticipated synergy buckets, which I will walk through in more detail.
36% of the EBITDA synergies realized here to to gape comes from SG&A while.
While the majority of these savings were realized early on we expect to achieve incremental SG&A synergies through 2022.
21% of the synergies comes from supply chain benefits or network optimization opportunities by leveraging the larger footprint skills and experience of the combined company and our purchase of goods and services.
This opportunity continues to increase as new initiatives are identified and better than expected performance has realized on current projects.
19% is from operations driven by best practices for the exchange of technology intellectual property and maintenance materials and procedures across our expanded portfolio as well as operational performance improvements at historically higher costs legacy crystal sites, such as Yanbu in Brazil.
<unk> at these sites continue to deliver on targets and identify new opportunities for implementation above what was initially identified.
Feedstock makes up the balance of a significant EBITDA synergies, representing 18% of the year to date figure.
We realized significant savings in what we call value and use or the ability to optimize the use of feedstocks internally, reducing the processing cost of our payment plans.
The last point I wanted to make about synergies does that investor day in May 2019, we had committed to achieving $920 million a total synergies in 2020 and 220 million by the end of the program in 2022.
We are pleased to report that we expect to nearly double the 2020 target deliver.
Delivering are 2022 target over two years earlier than expected and then we'll continue to further unlock and drive cost savings and synergies.
To be clear not only have we been able to deliver synergies at a more rapid pace. The synergy opportunity has a much more robust than we had expected.
We will now turn the call over to Tim Carlson for a review of our financial position Tim.
Thanks, John on slide seven and the top left quadrant, we've outlined our liquidity and capital resources at the end of the quarter.
We have 1.1 billion in total available liquidity, including 722 made of cash and cash equivalents.
Our cash is appropriately distributed amongst our global operation and we have no trap cash.
$722 million cash and cash equivalents excludes $27 million, a restricted cash which $18 million is an escrow related to the acquisition.
Our current liquidity is sufficient to fund the tty acquisition pay down debt and preserve optionality for our business.
Moving to the top right quadrant occur.
Our current total that is three $5 billion in our net debt is two $8 billion.
Our current trailing 12 months net leverages four five times.
We've included a chart to visually outline our debt maturities schedule as you can see we have no maturities on our term loans are bonds until 2024.
We also have no financial covenants on our term loans or bombs.
R capital allocation policy remains unchanged, we continue to prioritize disciplined capital spending on high return projects and deleveraging with the targeted net leverage up two to three times in a gross that level of $2.5 billion.
Moving to the lower half of the page capital expenditures in the third quarter or $47 million and our depreciation depletion an amortization expense was $76 million.
Year to date capital expenditures total $129 million.
We expect capital expenditures for the fourth quarter to increase to $70 million due to a couple of critical capital projects that Jeff will discuss neck.
Our free cash flow for the quarter was $37 million, while our inventory balance overall remained relatively flat quarter over quarter are pigment inventory volumes decline as we adjusted our operations to accommodate the effects of the pandemic.
While feedstock and other inventory volumes increased as we continued to operate our minds at 100% to meet internal fee to meet internal high grade feedstock requirements.
Additionally, unfavorable FX rates contributed to approximately a 20 million dollar inventory increase.
Our outstanding receivable balance remains at 95% current and we have no accounts receivable aging concerns.
I would now like to turn the call back to Jeff to provide an update on some key strategic developments and our outlook Jeff.
Thanks, Tim.
As I have emphasized many times in the recent months with the support and counsel of our board of directors, our management team, while very focused on navigating our company through the pandemic is not lost our focus on planning for the future and positioning them for the recovery to come.
I would like to take a moment to provide an update on several ongoing strategic projects that remain key to contributing to our long term strategy.
Strategic goals.
And May we announced the signing of a definitive agreement to acquire the <unk> business from are met for $300 million, representing synergy adjusted multiple of approximately 522019 adjusted EBITDA.
This highway strategic acquisition will further our vertical integration strategy by increasing our titanium feedstock production capacity.
Thereby reducing our reliance on third party feedstock suppliers, which will lower our calls and turn to allow us to better serve our picnic customers.
We continue to work through the customary closing process with the regulatory authorities and we're making progress towards closing as anticipated.
While the pandemic is diminished internal cp's side demand in the short term, we still believe that GTI will be a great asset and help us achieve our vertical integration strategy in the future.
As we mentioned the time of the announcement the GTI acquisition will also improve the likelihood of a successful commissioning ramp up and eventual acquisition of the design smelter.
And May we announced in an amendment to the design technical services agreement, which has allowed tronox to increase technical and managerial resources devoted to the project.
The design projects has experienced delays due to travel restrictions associated with COVID-19, but we are working to call back some of that time.
We remain cautiously optimistic that the ongoing design modifications will result in a successful startup and currently anticipate achieving sustainable operations.
The trigger for Tronox to acquire a 90% interest in the asset by mid 2022.
Tucson also remains an important element of advancing are vertical integration strategy.
Moving to the next project, we introduced project neutron at our Investor Day last year.
It is a global multiyear digital transformation strategy aimed.
And to reduce operating costs to enable tronox to maximize the benefits of a burglar integration and achieve a sustainable first core call integrated costs physician. This.
This higher return projects will reduce our cost per ton by introducing proven enhanced automation technology.
Implementing process improvements and deploying operational excellence across the portfolio.
Or $200 million capital expenditure target for this year reflects investment associated with this project.
The project and ramp up into the fourth quarter will drive the increase in Capex in the quarter is Tim mentioned and a portion of the increase anticipated capex expenditure in 2021 the.
The timing and pacing of this project is within our control we have the ability to manage our investment in neutron as macro economic environment and industry conditions Merit.
We are excited for the benefits. This project were delivered to our shareholders.
Neutron is an essential part of our strategy.
Two years ago, we laid out of five pronged strategy for success having.
Having a competitive cost structure across the value chain is foundational to that strategy.
Having that cost position will allow us to maximize the benefit of our distinct advantages of our unique global footprint and our vertical integration.
Our strategy is also founded on the premise that being the <unk> technology leader and having the right people the right culture and capabilities will enable successful execution of our strategy new.
New trying directly addresses several of those components.
Lastly, the outlets capacity project is the next mine development and our pipeline of high value mine projects available to maintain our feedstock integration from existing assets. This project will replace supply from our existing snapper ginkgo minds, which are nearing the end of their lives.
This mindsight located in eastern Australia is abundant in natural rutile and high values zircon.
And we will be a significant source of higher grade ilmenite suitable for direct use synthetic rooftop reduction or slag processing.
The project going sure that we maintain current levels of feedstock integration zircon spot Street green or strategy of vertical integration.
Hi returned capital project has commenced development and will contribute to capital expenditures for 2021 in line with levels indicated at Investor date for the medium term, which we will manage that's required depending on the global macroeconomic conditions and resulting market demand.
These projects represent key investments in the future competitiveness, upthrow nuts, and the differentiation of our vertically integrated profile.
While we continue to contend with the ongoing global pandemic, we remained simultaneously focus on handling our competitive position for the medium and long term.
As part of our year end results call early next year, we will provide more details on each of these projects.
Now turning to slide nine I'd like to share our outlook for the remainder of the year.
As I mentioned earlier the momentum we have moving out of the third quarter is indicative of the improved market conditions, we expect through the end of the year.
While the macroeconomic environment remains uncertain, we anticipate are favorable deviation from normal fourthquarter seasonality, resulting in strong fourthquarter <unk> sales volumes.
At or above third quarter of 2020, and the fourth quarter of 2019.
Additionally, as a result of shipment timing and continued recovery and market demand zircon sales volumes for the fourth quarter are expected to be the strongest of the year improving sequentially from the third quarter and the range of 25%.
Are expected to excuse me, our expectation incremental synergy achievement combined with the strength of our commercial outlook and all setting cost reductions should result, and adjusted EBITDA in the fourth quarter in the range of $155 million to $170 million with an adjusted EBITDA margin improves.
In fact, the first half of 2020 levels.
Additionally, we recognize that given the tax valuation allowance reversals in charge of this year or tax expense have been a challenge for many of you to anticipate we maintain our expectation a full year tax expense, excluding valuation allowance adjustments to be $30 million to $40 million.
As John service saw reviewed we continue to demonstrate our ability to exceed the initial synergy targets laid out and subsequently rates and expect that in addition to achievement. The newly increased targets for 2020, we should also continue to exceed the long term synergy targets laid out earlier in the year.
Moving on to our expectations for the full year.
We anticipate our full year of 2020, adjusted EBITDA to be in the range of 619 for $634 million.
And the following uses of cash net cast interest between 116 $165 million.
$15 million to $20 million of cash to be cash taxes, working capital B, a used a cast between 75 and $90 million.
Capital expenditures of $200 million, which is at the low end of our previous meetings and net pension contributions of between 15 and $20 million.
These represent our estimates based on our current market outlook. We also remain confident in our ability deteriorates strong free cash flow for the year.
R capital allegation priorities remain unchanged with high returned internal investments and get paid down taking precedent.
As I mentioned earlier in the call we are evaluating accelerated debt paid down options in the fourth quarter utilizing excess liquidity on the balance sheet too advanced farther tours are gross debt target of $2.5 billion.
You May also note than on the bottom of the slide nine we have modified our safe quality low cost tonnes mantra to include sustainability during the quarter led by Melissa Zona, our chief sustainability officer republished or 2019 G. R. I report with a combined thrown out some crystal businesses.
Sustainability and ESG continue to grow as we increasingly important aspect of our operations and we felt that acknowledging this and the way we think and talk about the times. We produce is critical to keeping these aspects of our business at the forefront of everything we do.
Not had the opportunity to review our G. R. I report I encourage you to do so a link to it can be found on our web site.
I am very pleased with the results delivered in the third quarter as they are a manifestation of our ability to leverage our unique portfolio to optimize our assets and secure our position as the most adaptable resilient qiaotou industry leader and allows allows us to continue to deliver industry.
Financial performance.
The outlook provided today is based upon our current information available to US globally. We are seeing a reversion of some economies to various forms of shutdown due to air Reso surgeons of COVID-19.
And <unk> uncertainty remains at this stage, we have not seen an impact to our end markets. However, we have developed the ability to adapt very quickly as needed should market demand significantly change we are cautiously optimistic that the strong sales trend we've seen through this month will.
<unk> through the end of the year and then to 2021.
In closing I am extremely proud of how focused our entire tronox team has remained throughout the prolonged pandemic prioritizing safety and looking out for the health and wellbeing of one another while continuing to deliver safe quality low cost sustainable tons for our customers.
I would like to extend my thanks, once again to my nearly 7000 colleagues around the world for strength and our performance speak to the resiliency of our business and the caliber of our people, which reinforces my confidence in trona <unk> positioning for the recovery become.
That concludes our prepared remarks today with that I'd like to open the call for your questions operator.
We will now begin the question and answer session.
Crossing the main thrust Fairbairn one.
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May you rest in peace.
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This question from from you choose from.
Please go ahead.
Hi, good morning, everybody.
I'm trying to get at what might be normalized when I look at your third quarter given the the negative impact from the pandemic I mean, your volumes and Ti to move about 16%, but they were down 9%.
We're over here is there is there any way to to Kwan.
Quantify when you're range as you ran in production with the fixed costs absorption might've might've been in terms of the negative impact and a quarter.
Hey, Frank It's Kim just to let you know from a cost adsorption standpoint, we did reduce our production to match the economics of the pandemic.
Doing so well, we did take about $14 million of idle facility charges in the quarter and with those are just use gap charges, whereby you gotta expense rather than capitalize uncertainty costs into inventory. So that was about two margin points.
Those Idaho facility charges will actually decline I'm quite a bit probably cut in half in queue for as we start to ramp up production on a couple of our sites, but we will still see a little bit of unfavorable takes over to absorption in queue for so.
Probably a similar margin profile from Q3 in terms of as it's flipping from.
Idaho facility costs too.
The over to absorption, but we'll see that to continue to improve but I'd just given some of the zircon that we see flown fairly in queue for it.
Gotcha. Thank you and if I think about the the very positive progress that you've made on synergies one of them was tied to operating began boo facility.
At higher rates than I do understand that we are in the in the midst of a pandemic. So that is having an impact on production, but could you talk about how you are progressing in terms of ramping yanbu up to to where you're Hamilton rates are in you know where you stand in that whole process.
So Frank it's J S look hopefully have done if we had a teen and obviously because of COVID-19, what we have done is that T mass kind of focus on quality and cost instead of focusing on volume and has the John.
Mentioned when he detailed the synergy I mean, we have over achieve on all other bucket of synergy and we're confident that we will continue to older achieve even if none of those synergy arlie two volume edition.
But I think breakfast is Jeff, but I think also we have increasing confidence of our ability to ramp up the volumes when the market demand calls for it. So while we have not yet stepped up turtles Hamilton lock weights, we certainly have an improved our visibility to be able to get there.
Perfect. Thank thank you so much.
From a skunk and somehow from them all day on the global equal harp.
Morning, Jeff.
Hi, how are you.
The comments that you made you you've touched on the Chinese market and you talked about how.
Pricing had infected positively in China tier to rise and you also touched on how ilmenite prices were going up for the course of the quota for two part question one is.
Obviously, there was a bit of a destock in China.
Earlier, so is that destock behind us and then incomes of or pricing.
You talked about ilmenite, but broadly speaking if you could just.
Where you're seeing supply demand right now because it's kind of been all over the place right.
As as as we were sort of going through the course of 2019 it seem deck.
Hi, Greg or in particular was pretty tight and pricing, we're sort of trying to grow up and then the pandemic happened and it seemed that pricing was weakening and now it just seems that pricing is growing up again. So so you know, but like I said, one on the Destocking China in to just.
Or pricing site.
Okay that is John Romano, So I'm on the Destocking in China I would agree with you we have seen.
Inventories come down that's one of the reasons why we're starting to see not only an uptick in demand but.
From the Destocking a price improvements that really started back in July and it's continuing into the fourth quarter on the ilmenite pricing.
Not only on Chinese, Illinois pricing that would be.
Imported ilmenite into China, as well and we've seen in.
And the Ranger I'd say from Q2, 25% to 30% increase in ilmenite pricing and that ultimately is reflected as.
And to Chinese tier two pricing and then ultimately that will have an impact on pricing in general.
With regards to high-grade feedstock, we haven't seen a significant move there. The pandemic obviously has had some impacts on production.
So I would say at this particular stage, although we're not in the market to sell other than what we're doing.
As mandated by the FTC with the transaction with Crystal when we close that.
What we've seen stable I'd say, hi, Greg feedstock pricing, but the likelihood that it should start to move up as we get into early 2021.
Understood It very clear, thank you and as a follow up.
Q for zircon volumes, obviously expect it to be quite strong and visit a guidance overall for the company is.
Quite strong as well just trying to get a sense of that 25% sequential zircon volume incremental guys are talking about.
Just sort of incremental EBITDA contribution for Q4, what would that translate too.
So from the same I will give you a little color on the volume and then symptom.
Provide whatever color we went on EBITDA, but if you think about our volume in 2019 and it kind of gives some impact on the resilience of the market even in the midst of a pandemic too.
2020 volumes are going to be about the same the timing of the shipments had an impact on it but we have seen a pick up in the fourth quarter and suggest the point the Jeff made earlier of.
And the range of 25% over and above where we were in the third quarter, we're seeing goods good demand.
Again and that trend moving into 2021 as well.
Hassan just from a Martin standpoint, as you know, we don't comment specifically on margin structures of our products other than to say.
Given the cold product nature of zircon. It does provide good margins for us.
Very helpful. Thank you so much.
For next question and some Donald now can you with beyond Oh Pizza hut.
Yeah. Thanks for taking my question I guess, the first one would just be around the the incremental synergies that you came up with the the incremental 45 million or so for this year I know you're going to give them more detail. It sounds like at the end of the year, but can you give us some color as to if these are just accelerated synergies that were coming from the.
Out here or if these are just do opportunities that you've developed and also it looks like if I understand it right. It's three Q run right in the <unk> run right in terms of synergies are about the same.
Why wouldn't that be inching higher as we as we looked at <unk>.
Hi, John This is John Service Hall.
Just mentioned and I mentioned my comments, we do.
<unk>.
Synergies to continue to outperform throughout the year spy, we raised our guidance.
We believe that.
And Q3, there were some.
One time synergy benefits, but.
As we go to a Q4, we expect to report at or above where we.
People I believe the full your number's gonna come on it.
And just to be clear I mean, I think is John said, he's <unk> comments the.
The increase synergy amount is both in the quantity the overall quantity and the pacing. So it is some new things that we've been able to realize synergies from and also delivering some of the things that we anticipated quicker now there's been there's been some things that we have not been able to fully will be capture.
Because of some of the effects of the pandemic or whatnot and that's why some of the allocation of the percentages have moved around a little bit, but but overall I think we.
The story, there is more sooner sooner and faster and John just adding one more thing it's Jennifer So your question regarding the fourth quarter being line was the third quarter. You know as we said we didn't really tie a lot of our synergy two volumes, while we're expecting a pretty strong recovery on the volume friends in the fourth quarter, we're still managing our operations to align with the demand.
We've seen this year. So I think that that's more attributable to why you're seeing kind of Ah Ah level amount in the fourth quarter.
Got a fair enough now that all makes sense and then I guess.
On the stronger T O two demand can you give us some color as to what you're hearing from your customers is this a function of them trying to.
Catch up for you know maybe being caught off guard a little bit in terms of in terms of stronger demanded <unk>, where they're kind of trying to get their own inventories back in shape or is this more function that look for Q.
Total end product demand as just that much higher gets how should we be thinking about that are how are you thinking about that and what does it mean in terms of how you think the customer base and the year in terms of overall inventories.
So from the standpoint of where we are on.
Our view on customer inventories.
And the second quarter I do believe although our numbers were down significantly our customers were running through and consuming a lot of the inventories I had on hand. So there is an element of inventory rebuilding that was going on but I. Do also believe that this is true demand development. When we went through our scenario analysis.
Looking at the outcomes that might happened as the pandemic kind of eased.
This is pretty much one of the more optimistic views that we had and our volumes have recovered and as we look into the fourth quarter.
Actually October is the second strongest month that we had this year.
Only I guess.
Then the number the number we had in March so we continue to see strong volumes and that's why we're not going to see the seasonal.
Impact that would normally see in the fourth quarter because the recovery is outpacing what would normally be seasonal downturn in the fourth quarter.
Great. Thank you very much for the color.
<unk> it sounds as efficiently Martin Luther home.
Yes, good morning, guys.
First question is just around the Saudi smelter.
As it stood before.
There was supposed to start ramping in Q1 and I thought the commentary was we would know pretty quickly after starts to ramp whether the fixes worked or not so in the new timeline.
When does it actually ramp up and when would we know if the fixes are are generally working and has the amount of money that is going to cost us gone up with this delay.
Those Duffy, it's J S.
Look versus what we have said previously there's only about one to two months delay that he has had because of the COVID-19 situation and the adding difficulty to have some of the key people on site to realize some of that modification.
So we're now in this age to start in the middle of next year.
And the plan when Jeff refer that it's in 2022.
That tronox will acquire.
Meltzer and that would be probably a year after startup.
We'll do that because as you know the smelter has to deliver a certain level of success for us to take the ownership, but as of today and the construction is at about 70% complete on those modification, we're making good progress look we had.
On site, you know a neck has a coup.
Almost more than 300 people you know that are working on making that construction and making it ready for the start up and that we see in Q2 21.
And then Duffy in regards to your question as to whether or not our cost will go up with any delay. We are capped at 125 million, we have $113 million at the end of Q3, we've made the additional $12 million contribution in queue for already.
B no additional cash outflow related to design going forward recap that 125.
<unk> I think your premise that when when we begin to ramp up will know shortly after I think I think that's that's accurate I mean as we as we begin to ramp up certainly will be will get a lot of good read on whether it's going to be successful and then obviously you wrap up and start to push it you get get a better feel of how long it might take.
To ramp up to sustainable operation level, but yeah, you're you're right mid next year, we should get a really good read on whether the design modifications have had done the trick.
Great. Thanks, and then this year the net exports out of China have gone up pretty significantly. So two questions are one that incremental additional tons geographically, where do you see or where have you seen most of that in depth and then the second one is do you think that's a new.
New structural level of Chinese net exports, meaning they added more supply. Maybe then we thought or was it just a result of the week demand in China and so it was a chance to Chinese net exports actually decrease next year.
Yeah.
I'll answer the last question first and I think.
Demand in China has been.
I'd say suppress Tibetan so that does drive the exports up and when you think about that.
The change in the volumes in September it's down a little bit from August about 3%, but now on average it's still at this particular point in time trailing 12 months is about 117 million times. So.
I do think that there's no question. The Chinese have added some capacity. There's also been some capacity that's been pulled out as well so.
It's a bit hard to say that 117 million tonnes as a new trend, but I definitely believe that some of the demand pickup and China will now start to absorb that volume as far as where the volume test on.
Obviously, we have a facility and Brazil. So we compete head to head with the Chinese there on a regular basis and there's been some volume input and input in Turkey in Europe, specifically I would say.
And then.
India, we've seen a little bit of an uptick as well, but then we talked about earlier, we have seen a significant move and pricing we have great visibility into that because we have an asset in China now and our pricing on sulfate material has moved up and we will continue to move up.
As we entered the fourth quarter.
And the fourth quarter of 2021.
Terrific. Thank you guys.
The next question is from Vincent engines with Morgan financing to go Hunt.
Hi, This is Steve hands on for months and I wanted to ask a question on margin.
Given that in 2019 may kind of had.
Thank you stop trying.
2020 retired obviously endemic any because I've taken out a ton of synergy that sounds like there's some temporary kind of cost of for all that's also gonna come back next year. So I mean, how should we be thinking thinking about EBITDA margin directionally.
And any kind of kind of directional guidance would be that would be helpful. There.
Got got Steve. This is Jeff I think you know as I said I think EBITDA margins in the fourth quarter will recover too.
Sort of what we had in the first half so recovered to that mid 20 range and I think a longer term, we'd certainly believe that we can sustain.
<unk> EBITDA margins in that range with maybe a little upward movement as we as volume recovery. So I think that's a good long term outlook for we're sort of our our EBITDA EBITDA margin profile.
Okay. Thank you.
The next got several times.
Sure.
Uh-huh.
Hi, Thanks for taking my question I was just wondering if you could maybe share what you would think looking at upside volume scenario in fourth quarter I understand seasonally it's it's maybe a little bit tough to predict but it's October strength continues what would you expect to see for the fourth quarter as a whole.
We're not going to give a specific number but we.
We do expect the fourth quarter numbers based on where we are today to be at or above where we were in Q3 as well as where we were in queue for a 2019.
We've seen a significant increase in demand for coatings and plastics and the one market, where we hadn't seen much of her recovery within the <unk>.
Eliminated paper business and in September we started to see that volume recover as well.
Again October sales are strong we will have some seasonality, but because we're recovering that seasonality has been muted by the recovery and.
I guess, what I would say confidently at this particular stage is that.
Q4 will be at or above Q3 levels adjustment and the other thing is still happened to use the order book is still coming together a little bit different than historically has an.
Even though yet this month, we will continue to place orders.
Very late into the month is nearly as recently as even though this week for shipment. This month. So that's a little unusual but just shows that buying.
Buying patterns have changed a bit because of the pandemic.
Thanks, and maybe if I could try one more time and I think you'd be willing to share how much October volumes were up year over year.
No Josh I mean, we don't we don't track and report month to month year over year volumes, but again as John said, we're we're very confident that the fourth quarter volumes will be at or above third quarter volumes in at or above 2019 levels.
<unk> you know for the fourth quarter from the third corner is.
Rocks neatly in the high single digit there settled down sequentially. So you know we're talking when we say a favorable deviation you know to be flatter above is.
I'm pretty I'm pretty big move away from what we typically eat tranquilized.
Okay.
Understood fair enough and if I could ask yet so on the synergy front.
Obviously doing a lot better than you guys expected.
I guess, what I look at SG&A, specifically for this court relative to last year, it's kind of flattish I'm not sure maybe what I'm missing in that year over year comp or.
Some of those synergies maybe offsetting some expected inflation, how would you characterize that.
Josh made us an incremental employee benefit costs in Q3 of this year and we had a little bit of a credit an employee benefit costs in Q3 of last year.
And plus in your comment about the inflation is right. Some of the synergies have have offset inflation and some of the cost items.
Okay, what would be normalized SG&A for three Q have been without that extensive comp accrual.
I'd say about $3 million to $4 million.
Okay alright, thank you.
Mhm amongst girl send me some Chinese Sandra asked me to government. Please go home.
Hi, good morning, if that's sort of a two part question here on the fourth of integration side, just what Suzanne coming on in 2022, you got PTA progressing.
Just wanted to confirm that those two assets will fully get you to your total innovation targets, both sort of the level and in the time frame that you'd like and then second part would be here somewhere.
More generally just what does the availability of mental fence pizza assets look like in the market right now just in the event that you will competitors want it to be more active on that front.
Trevor maybe I can answer the first part of your question today, we're about 70 to 75 vertically integrated and with DTI, We will move to 90 to 95.
That assume obviously that we would get hundred percent of the tty production, but look it's likely that TGI would have some contract that will need that we will need to respect and obviously when we start Kazan. The intention is to ramp up Japan with the need.
The increase in our pigment production so that that's really the the planning that we have.
To achieve our vertical integration yeah in Travis.
If we end up in a situation where design comes on and we are structurally long and high grade feedstock no. It's not our intention goodwill to enter the commercial market no it'd be a merchant seller hybrid feedstock, but what we will look for opportunities to put that asset to work to create value for our shareholders. So it will be very pro.
Active in that regard and then regarding your overall question about mineral fans assets I mean.
That that activity continues right, they're always a number of projects that are out there looking for investment looking for sponsors to help make successful so I think or any anybody who wants to become more aggressive in that area. There are projects available that are in need of investment in need of.
Probably fresh money.
That's helpful color on Bolton's Amiga says an extension to kind of stuff just wondering when you talked about.
Considering that pay down for the end of the year I guess one are you.
Yes, our base case, you'll be looking to pay down you know people.
People think that just does that.
Generally what are you thinking about things and then too.
Anything like emanated or anything else that we should be aware of it like sort of not disrupt the delay.
Any plans to pay down debt. Thanks.
Hey, Travis Tim just as it regards to your first half of the question in terms of the debt pay down we're looking at all options, but right now the most likely option just given the facts and circumstances is to pay down on the term that.
Yeah, and Travis in terms of no other other capital allocation priorities as we said in our prepared comments stuff that the projects, we have going on the strategic projects week neutron Alex capacity are a real priorities along to pay down again, we don't we don't expect other than closed the <unk> acquisition.
It's already been planned we don't foresee emanate being something that would interfere with those.
Priorities.
Awesome tissue phone.
Your next Bill 17 times on speed to the Bank of America Uh-huh.
Good morning.
What is your.
<unk>.
Liquidity target and and how much excess liquidity do you have at September.
Recognizing their strange of Miami severe.
And.
Oh, that's up first.
Targeted liquidity.
Dependent due to that to be a year ago, but a little bit different just given the pandemic.
<unk> on the higher end of a target of liquidity now in terms of no three.
Three $400 million of cash and then the three or $400 million of.
The avs and lines.
Lines that we have not used excluding that GTI, we have over $800 million of liquidity, which is foreign above what we need is which is the reason that we're looking at them targeting the debate on from that.
So I just want to make sure I understand it's three to 400 of.
Of normal life liquidity of cash plus term lounge chairs.
We have availability or a beach.
Kind of like a a that each but.
So combined it's probably more than $500 million right now.
Combined about $500 million right now, where we are given the the pandemic without the pandemic. It it's probably 200 million lower than that.
Just given the strength of our business model proven that we can generate free cash despite the environment wary.
And do you have an initial 2020 on capex given.
Charlie and.
<unk> and what what what that project the that's the.
A place to snap on ginkgo minds, how much would that cost cause it sounds like greenfield require infrastructure et cetera.
Okay.
So on that.
Capital expenditures you know we're currently estimating.
And and that I should say, there's an investor day, we communicated that we have some elevated levels of capex due to these high investment high return projects you communicated I think.
In the mid 300 range I think we could be lowered.
Lower than that.
We're still going through our 2021 planning process. So as a part of our queue for results like just add will disclose our our current forecasts, but outlet capacity and new tryin' R&D projects, largely driving that increased like Jeff outlined on the calling and heartless capacity is the name of those mining development site.
And we are building out that will replace snapper income. It's similarly, located so there is some shared benefit there, but they're still development capital required for those sites. So but also like Jeff said, depending on the market condition should they need be there to pull capital you know we can.
Certainly manage that so we anticipate currently those those targets, but now it can be that can be adjusted if needed much like we did this year with our capital plan given the market demand environment.
Oh, Thank you very much.
He's smoker current question and answer session I would like to come to Congress medical that didn't African chairman and see him for any closing remarks.
Thank you operator again, thank you for your time today and thanks for all your questions.
It certainly has been a memorable year for us here tronox. Despite a lot of uncertainty the year is playing out much as we anticipated at one point with they're very strong first quarter, a cubs second quarter due to the pandemic and then recovery in the third quarter and closer or sort of back towards.
Maliseet in the fourth quarter.
Not out of this yet obviously, but we are encouraged.
We look forward to speaking with many of you in the weeks to come at some of the conferences that we're doing.
The address and all of you in February for a year and call to discuss the proposed out of the year, which we believe will be very strong in our path forward in 2021, and as I said at the time, we'll update you on a couple of the key projects and provide and updated view on overall along with longer term synergies. So.
Thanks, very much we appreciate your time and everyone have a great day. Thank you.
The conference has now concluded.
Come into the instrumentation.
HM.
Goodbye.
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